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Key employment law considerations to take into account in setting up a business in England and Wales

By Anthony Sakrouge
Posted: 24th August 2016 08:14
Organisations and investors hoping to set up a business in another jurisdiction first need to understand the legal obligations they will have to comply with and the entitlements their employees will have. These will often be very different from the ones they are used to. This article looks at the most important employment law entitlements and obligations in England and Wales.
Wrongful dismissal
A wrongful dismissal occurs where an employee is dismissed in breach of contract. Usually a claim arises from the breach of an obligation to give notice or make a payment in lieu of notice.
During the first two years of employment an employer can terminate on notice, or on making a payment in lieu of notice, for any reason other than an inadmissible or discriminatory reason under statute. Importantly, the employer will be entitled to dismiss during this period merely because the employee has not turned out to be as good as hoped (even if it cannot demonstrate poor performance) or because the employee is not considered a very good fit.
Unfair dismissal
After two years’ service, employees in England have the right not to be unfairly dismissed. “Employment at will” effectively ends at this point and any dismissal thereafter will only be justified if the employer can establish one of the fair reasons as defined under statute, having first followed a fair procedure. The fair reasons in question are:
  • incapability (usually due to illness, injury or poor performance)
  • qualifications
  • misconduct
  • redundancy
  • contravention of a duty or restriction (such as the requirement that the employee should be legally entitled to work in England)
  • some other substantial reason.
The “some other substantial reason” ground can apply, for instance where:
(i)                  the client for whom the employee was working says that it will withdraw its business if the employee is not replaced (and there is no other work for the employee to do); or
(ii)                two employees who are required to work closely together have been in a relationship and no longer feel they can work together once the relationship has ended.
Constructive dismissal
If an employer is in breach of a fundamental term of the employment contract, the employee is entitled to resign with immediate effect and treat himself as dismissed. In the first two years of employment, the most the employee will usually be able to claim in such circumstances is notice pay. Thereafter the employee can also claim compensation for lost earnings, arguing constructive unfair dismissal.
Discrimination, whistleblowing and statutory rights
Employees are entitled not to be discriminated against on any of the protected grounds referred to in the Equality Act 2010 (age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation) or any combination of these. They are also entitled not to be subjected to a detriment for having asserted a statutory right or made a public interest disclosure (known as whistleblowing).
Employees with more than two years’ service are entitled to a statutory redundancy payment if they are made redundant. The figure increases every year but is currently set at £479 for each full year worked, assuming the employee earns at least that much a week (or £479 x 1.5 for each full year worked over the age of 41) for each of the most recent 20 years of continuous employment.
Transfer of undertakings
Employees will often be entitled to transfer when a business or part of a business changes ownership, or where there is a change of service provider (such as a cleaning or workplace catering company). The size of the business or part of the business does not matter for these purposes and the relevant regulations can therefore apply even if only one employee transfers. Where employees have a right to transfer, they are also entitled to be employed on the same or better terms.
48 hour working maximum
Employees are entitled to work no more than an average of 48 hours a week, measured over a 17 week period, unless they have agreed to contract out of this right. In practice senior employees will usually be prepared to agree to opt out of this right if asked to do so and they will only very rarely exercise their right to cancel their opt-out on giving notice to the employer.
Paid holiday
Most full time employees are entitled to 28 days’ paid annual leave, including any bank holidays. For part-time employees, the statutory holiday entitlement is calculated by multiplying the number of days they normally work a week by 5.6.
Part time and fixed term employees
Part time and fixed term employees have the same contractual rights as full time and comparable permanent employees and should not be treated less favourably unless there is an objective justification (usually in the form of a good business reason) for this different treatment. The failure to renew a fixed term contract will constitute unfair dismissal if the fixed term employee has more than two years’ continuous service, whether obtained through a single fixed term contract or a series of fixed term contracts, unless it is for one of the fair reasons for dismissal referred to above.
Flexible working
Employees who have been employed for more than 26 weeks have the right to request flexible working arrangements and any policy which forbids flexible working or makes it clear that such an application will be unsuccessful may also be considered discriminatory. However, provided the correct procedure is followed, employers will often be entitled to refuse an application for one or more of the following business reasons:
  • the burden of additional costs
  • an inability to reorganise work amongst existing staff
  • an inability to recruit additional staff
  • a detrimental impact on quality
  • a detrimental impact on performance
  • a detrimental effect on ability to meet customer demand
  • insufficient work for the periods the employee proposes to work
  • a planned structural change to the business
Significant changes in the country’s immigration laws can be expected following the recent referendum decision to leave the European Union. Free movement of workers from the European Union into the United Kingdom continues for the moment, but will eventually be restricted. In order to employ employees from outside the European Union, employers already need to obtain a sponsorship licence and accept all the duties of a sponsor (this may well eventually also be necessary in order to take on employees from the European Union). Non-compliance with these duties can have serious ramifications, including the down-grading, suspension or revocation of the sponsor’s licence and the curtailment or revocation of any sponsored employees’ leave to remain in the United Kingdom, so it is very important for organisations to ensure that they are complying properly.

Anthony Sakrouge is the Head of the Employment and Immigration Department at Russell-Cooke LLP. The team has been recognised in the legal directories for its work advising organisations, many of which are based abroad, in both areas. Areas covered include breach of contract, discrimination, whistleblowing, unfair dismissal, breach of duties, restrictive covenants, team moves, transfer of undertakings, and sponsorship and Tier 2 visas. It also provides the full range of non-contentious support, including drafting contracts and policies, helping employers through disciplinary and grievance procedures, conducting negotiations and carrying out immigration health checks to ensure that sponsorship duties are being complied with.

Anthony can be contacted on 02083 946504 or by email at
  +44 (0)20 8394 6504

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